tv On the Move Bloomberg October 29, 2015 4:00am-5:01am EDT
so many earnings. so many corporate numbers. dax futures up 34 points. let's get straight to it and get your european market open. >> thanks, jon. we are seeing stocks heading for that monthly gain rebounding from that quarterly route. in fact yesterday we saw the stocks snap a two-day losing streak. it was oil and gas companies leading those gains. yes, we had that policy decision from the fed. of course no rate hike. nobody was really expecting that but what dedid get was a possibly of -- we did get was the possibility of a rate hike. they have not committed to move this year. we have seen the possibility of a rate hike in december at 46% and greater than even odds are priced in for january rather than marv. let's take a look at how european stocks are reacting to this. you can see the dax in germany
still closed. ftse down .4%. cac 40 on the other hand looking up almost .2%. it is coming in a little bit of a mixed picture at the moment. investors digesting the slightly more hawkish stance from the fed. digesting the earnings reports that we have had today as well. i'll take you through some of those focusing specifically on the oil majors of course. that is one of the industry groups that we have been looking at this morning. shell down more than 1% after a reported 70% decline in third quarter profit. largely down of course to slumping crude prices. brent crude fell about 45% in the past year. total, this is moving higher. shell of course europe's biggest oil company, total second biggest. third quarter profit actually beat analyst estimates. this was down to a refining business. we saw that pull through in the
second quarter as well. lower crude prices tend to be better for refining margins. italy's largest oil producer reported a net loss in the third quarter. just very, very quickly going to show you the brent price before we move on. of course we saw oil have its biggest gain in eight weeks. coming in at $48 a barrel. back to you, jon. >> thank you very much. just getting breaking news from deutsche bank. the c.e.o. unveiling plans to revise the bank. manus cranny pouring over the details. manus: 28,000 jobs on the goo by 2018. hat includes the divestment of assets. originally it was 23,000 jobs. the top line is 26,000 jobs are to go. this is about getting business done which is more efficient. the number of corporate and
investment banks are to be cut by 14%. that is tayloring back the bank to deliver a better return on equity. top line, 26,000 jobs are to go. 9,000 will be over and above from asset sales. corporate and investment client banking will be slashed by 50%. they are moving their trading operations in brazil to hubs. stock is ja little bit lower. i think what you have here, jon, they are cutting costs by 3.8 billion euros by 2018. this is one of the highest cost to income banks out there on the european land swape. last night we learned they are cutting the dividend over the next two years. there has been speculation of bonus cuts up to half a billion euros. the dividend has been scrapped in terms of the assets. they will sell assets with a cost base of around 4 billion euros. job cuts, trimming back the
corporate and investment bank here. they are targeting a cost to income ratio, jon, of 65% by 2020. by my reckonning, they still have quite a hefty way to go on that. this is one of the highest cost-to-income ratios of any of their peers. that is the ambition being laid out. terms of the cost-to-income ratio, by 2018, they are targeting 70%. they are targeting a ratio of 5% by the end of 2020. he bank is to close businesses in 10 countries, argentina, chile, peru, mexico, finland, norway, new zealand. this is taking a hold of this bank and moving on what what
many say andrew jane did not deliver. there is a new management anytime place. -- in place. it is really moving on trying move the bank forward. cutting investment banking assets in terms of moving to a higher leverage ratio for deutsche bank. all change, his stamp is becoming wide and pervasive. >> thank you very much. stay with us. i just want to bring in tim of her american s investment management. great to have you with us this morning. so many headlines to pour over. 10 countries cutting the number of clients by 50%. manus got a series of headlines. anything surprising to you, tim? >> they are doing the right
thing, i think all of these things they are talking about doing, they need to shrink the bank and balance sheet. so far interest what i have seen on the headlines it seems to be yes, this is what investors want to hear. of course achieving that now is going to be a different story. that will be a big challenge for them. jonathan: as far as you're concerned, the number of jobs set to go, the asset disposals we could potentially have, investor fatigue is what comes to my mind. they don't know what is going on with deutsche bank. so many chanse change overs the next 12 months. are we going to mover in a straight line? tim: i hope. you said it right, investor fatigue. it is not just deutsche bank. so many of these banks need to restructure and remodel their businesses. the big question for us is what is deutsche bank and other banks out there, what are they going to look like at the on the other hand this restructuring period and what are the risks and who is going to execute and do what they say
they are going to. jonathan: there were so many numbers. i want to make it simple if i can. the divisional structure of this bank. what does it look like in 2020? what does deutsche bank look like? what kind of bank is it? tim: that is a good question. lot of banks talked about reducing the size of the bank. i think if they do shrink or refocus, at least the investment bank that will be taken as a good thing. generally, we want to get back to basics. jonathan: manus cranny, i want to bring you back into the conversation. we had a conversation about how well flagged a lot of this was. is there anything in this strategy update that stands out as a surprise to you? manus: i just think these headlines are so significant, jon. this is a c.e.o. who is telling
his shareholders that he is radically shaking up the bank. we know there is four parts to the bank and know the team that is in place. he has a mountain to climb. in terms of looking at this bank, jon, this goes back to the conversation we had with many of the european banking heads, monti, a whole variety of men who have taken their banks on a radical transformation process. this is about building capital and the aim of building capital is to deliver a payout ratio to your shareholders of over 50%. to do that, you have to get real about what businesses do you want to be in? where are you investing capital? the ironic thing is the trading side is it actually beat estimates. that is where the biggest portion of the business is. the question is what portion do you want to be in? equities? bonds? high yields? what part of the trading
community do you want to be in this? equity trading fell by 19% for this bank they are targeting a cut of 600 million euros by 2018. there is a lot of work to do between now and 2018. the objective. what a beautiful headline. deutsche bank is to become a less risky business. where have i heard that before? the journey started five years ago for sergio monti. he said it would be a less risky business. he has buffers with caps at 13.5. sample 12%. europe he these reduce his risk-weights assets. next year is going to be a heck of a year for risk-weighted assets. can the market take it and a
hiking cycle from the fed? jonathan: can they? tim: it shines a spotlight on it. those banks that got their shopping order earlier, soon after the crisis erupted are the one s that aresitting pretty now. i think the ones who are going into next year trying to shrink their balance sheets and focus their business on the part where is people want to be, things like asset management, a loss of competition, to increase exposure to this area is going to be a lot harder for late comers to the party. jonathan: manus cranny, much more from him throughout the morning on deutsche bank. im crawford will stay with us. bets on a rate hike from the fed increase dramatically after yesterday's meeting. then after that shell slides. they report a on% decline in third quarter profits and
the dollar climbs to a two-month high. fed hike increase odds decreased dramatically for next year they dropped a reference to global risk and referred to its next meeting in december as it discussed liftoff timing. charlie klauser suggested that the fed should have hiked already. charlie: i think they should have moved last year. i think it is interesting to watch how in some ways the language does change. the case for the international hesitancy that was given in september and how that kind of backed off on that i think is troubling from a communications strategy standpoint. jonathan: tim is still with us. your interpretation? tim: well, i think the main change interest the last statement was as you said, they
dropped the international line. it was more hawkish after a previous statement. which was margely more dovish. dovish, hawkish. just get it done jonathan: what has changed in the last month for them to drop that reference? what has changed? tim: it is a good question. i think the reason they wanted to go in 2015 was for credibility if nothing else. so much focus about will will they? won't they? when will they do it? they need to hang on no to that last shred of credibility and try to prove their message has been straight all along. jonathan: arguably the only thing that has changed is a market that has stabilized somewhat. you wonder whether the market can back up the fed once again. is that how you see things playing out? tim: that is a good question. i think they will tell you they don't look at the stock market that much. you have china easing which
probably has helped the fed a little bit. they will deny that. jonathan: look at the e.c.b. coming into december. we face a prospect of a rate hike in december. a chance s of a real material fed rake hike. going into december, you wonder what president draghi read that statement and said i don't have to do as much as i thought i needed to do in december. does it change for the e.c.b.? tim: i'm sure draghi was smiling yesterday when he did read that statement. it helped him. i think he opened up some -- he made sure it was as wide as possible. he made sure he had as many levels as possible. he would have had to use them had the fed become increasingly more dovish. what we have more is the fed stepping back with a hawkish turn. that is a help for the e.c.b.
you saw the dollar bounce off the $1.10 level. i think he wants that. jonathan: treasury yields higher. we're going into november and december. i know what to look for. payrolls, p.c.e., the janet yellen speeches every time she speaks between now and then. does the data need to be good enough to push them over the line or bad enough to stop them? jonathan: you have some of the fed members who are waiting to see more signs of increased inflation. some and i think yell season in the middle where they are ready to go now as long as things don't deteriorate and some think we should have raised a while back already. i think if the employment data and inflation data doesn't fall off a cliff, i think we'll go in december. jonathan: tim crawford is going to stay with us. next up on this program, from
crude reality. shell posted a 70% decline in third quarter profit as crude price slumped missing analyst estimates. shares down this morning about 2%. for more, jason, an analyst joins me now from the jeffries trading floor. great to have you with us this morning. first of all, on the top line, this is a terrible number for shell. when you look at the number, is it another story for you, jason? jason: it includes about a billion dollars of charges related to foreign exchange movements in brazil and australia. if i had those back, a 2.8 billion number would have beat the consensus by 7%. we didn't have those foreign exchange losses in our numbers. manus: -- jonathan: is there anything left lurking around the corner for shell as far as those kind
of moves are concerned? son: they also took an over $3 billion charge. geerting a kitchen sink quarter in relation to the merger. shell moving away from the arctic and moving away from oil being they have much better places to invest that will lower down the cost curve. jonathan: the number i keep hearing now is $60. they are trying to shape it all round a $60 oil price into 2016-2017. why $60 and is that number becoming so important to them? jason: i think the magic number is 60 because that is where it was pointing to this 2017 when earnings were being put together. if the industry is restructuring itself to be profitable at $60 a barrel that sets us up for a much better
set of returns than when oil was $110. i think $60 oil in 2017 is going to be insufficient to balance the market. it jonathan: what is the tradeoff with the dividend that determines protective dids. what is the long-term tradeoff for these company if they protect the dividend in short-term. what does it mean in the years to come? jason: i think it means we'll have a higher level of debt on the balance sheet. that is going to be the stock to fund the deficit. i don't think that paying the dividend from debt is a sustainable strategy but if we have the belief that oil prices are going to be higher then i think it does make some sense to just reinforce to shareholders there are a steady source of income here and that there is enough capital discipline within the management decision making
process to continue paying that dividend. jonathan: as you look at the big oil majors reporting so far this week, total with a big beat this morning. they keep doing it. the downstream business offsetting what is happening upstream. which balance sheet is best positioned to really take? which company is best resilient? jason: s the total had a good set of results. b.p. had a good plan to play their did. i would still come back to shell. they are the most leveraged with being able to do things with their cost structure. i think the b.p. merger will be informative. jonathan: great to have you with us this morning. final thought this morning from tim crawford, portfolio hermes investment management. a big rally to these numbers. i see a move of some 12%, 13%
for october. a rally into the numbers justed for you tim: i think it has do with the oil price going up. that is now being driven in the short-term at least by the fed over anything else. takes us back to our last conversation. jonathan: do you like energy companies? at some point it backs a buy. you look at these big dividend yields. either the dividend gets cut or the stock is too cheap. which one is it for you? tim: the question, do we like them? we're watching what they are doing. i think what they are doing is similar to what they did in the 1980's and 1990's and started cut cap exaggressively. -- capex aggressively. saving a massive rally in the oil price i think we'll keep waiting on the sidelines. until we start seeing more signs of the oil price going up
or increasing cost cuts. jonathan: the beginning of the cycle a n the oil industry. the miners are playing a very different game. not napping energy. which do you like out of the ex-traction industries? energy or materials for miners? tim: none of them. if you don't have to have any of them, don't. if i had to choose, i would probably go with oil and gas. the mining industry is a much wider base. jonathan: great to have you with us this morning. next up, an exclusive with germany's biggest company. the c.e.o. of bayer joins us after the break with a decent beat from that company this morning. ♪
jonathan: good morning and welcome back to "on the move." i'm jonathan ferro live from bloomberg's european headquarters in london. 30 minutes into your trading day, this is how the market is shaping up this morning. the post fed moves in europe. the stoxx 600 pretty much dead flat. the ftse down. the dax up this morning by 08%. for now, though, let's get straight to the top stock stories. >> thanks, jon. i'm starting with shell, of course europe's biggest oil company. take a look at that stock down 1.9%. this is after posting its
biggest net loss in at least a decade. it is all about that slump in crude price. some that% drop in brent crude over the past year. shell has been saying yes, it might be cutting back on jobs and investment calling pulling out of certain projects but it is going to keep the dividend. nokia, this is actually the best performer on the stoxx 600 this morning. t is announcing plans to return 4 billion euros to shareholders in dividends and buybacks and move toward a target of savings it is expected to reap from the takeover of alcatel-lucent. that stock jump is the most in two years. finally barclays is not just the oil majors but the banks reporting today too. barclays third quarter profit fell 10%ing estimates. of course what everyone is going to wand to see now is how
the new c.e.o. copes with the investment bank whether that scaling back is going to continue, but at the moment, this is reaction for the earnings. barclays down 3.6%. back to you. jonathan: thank you very much. another set of ernings this morning from bayer. they posted third quarter profit that topped estimates. this is for the blood thinner and eye tream. marijn. great to have you with us. congratulations on the numbers. no signs of slowdown at for your company? marijn: no, not really. the numbers were good. we were able to grow, mostly again as a result of our new innovative products, particularly in pharma but also in science and in spite of the
industry dynamics being somewhat more difficult, we had growth and earnings growth as well. asia is not really affecting us from a cyclical point of view. as a life sciences company we don't really follow the economic cycles to the same extent as more industrial companies. jonathan: we had a series of discussions over the last few quarters as your company transforled itself almost exclusively into a true -- life science company. you still hold a 69% stake. what happens? that company is still performing very, very well. is there a temptation at all to keep the stake? marijn: no. in the end, our intention is to, you know, basically not be invested in it. but the exact timing of that needs to be, you know, decided over time. our focus is really as you say
on the life sciences business. that is where we are very focused on the health of humans, animals and plants and we will focus all of our resources, human and financial on the business model. jonathan: you look at it, though, you went early with the listing because it was doing very, very well. at the same time, you're going to dispose of that stake, does it make sense to do start doing that as soon as possible as far as you're concerned and is that a matter of months? marijn: there are some tie-ups that we have for at least six months where we cannot make a move and then we will see, you know, depending on our own need for cash and the opportunities, the market conditions. we don't have to make the decision right now. we will just play it by ear. but as i said, our intention is ultimately to get out of those
shares. nathan: let's talk about the agri business. i speak to a lot of analysts and they presume maybe bayer is interested. is it attractive to you? marijn: well, there is definitely a development going on in the agricultural business and the crop science industry where people are re-evaluating their position. we are looking at the various opportunities, but it is of course for me very hard to talk about specific targets. but it might very well be that another consolidation step one way or the other could be in the making in the next few years. it would not be a large -- jonathan: i understand that you cannot talk about it if you are in talks. would that be ain tractive part of the business?
could you see that being a part of bayer? marijn: i think we have to look at where we are already good and where we have opportunities to make our portfolio stronger. in our agricultural business, we are actually very, very strong in the crop side of things. chemicals and biological agents used to treat crops to make ure they are not attacked by infestation. on the seed side, we would like to develop a stronger position, so more likely than not, the seed side would be interesting for us, rather than crop protection side. jonathan: marijn, is that because this industry is increasingly consolidating. the choice you have to make as a buyer is get bigger?
is that the decision you have to make in the coming years? marijn: essentially there are two things. having the best products and the best innovation. in the end, the farmers want the best products for their crops and are willing to pay for them. it makes big difference for them in yield. but thr there is also the aspect of how broad is your product line? how many different capabilities can yufere to the farmer and for that, you have to be not just deep, good in the product but also have a relatively broad portfolio. so the balance is always -- this is always the case with consolidation. how important is it to be broad vs. deep? and that is an analysis that every company has to make for itself based on its strength and weaknesses. jonathan: i just want to wrap up this conversation quickly by talking politics. i know it is something you probably don't want to discuss in too much detail. u.s. drug prices are becoming a huge political football going
into the election in next 12 months. as you look at the situation, how are you positioned on that debate? is that a concern on your agenda at the moment? the pricors drugs? how does that affect you? marijn: pricing of drugs affects the whole industry and in many countries, not just in the u.s. my point is actually very simple. we are very focused on coming out with better new drugs, truly innovative drugs better than the current therapy. when we sell those drugs, the profit wes make, we reinvest those profits in the development of new better drugs for the future. it is a cycle of innovation that continues. now it is relatively risky business to do this high level innovation model in pharma and as always, with relatively high risky business, you have to be
appropriately rewarded in pricing in order to keep it going. the important thing is the reinvestment of profits for the future. the pharma companies that i know and that i respect are all doing that and i think that model will be sustainable over time, particularly because with the new technologies that have been developed, we have tremendous opportunities to come up with better medicines for diseases that are often, you know, not curable or treatable at the moment. jonathan: marijn dekkers, thank you very much for joining us this morning. once again, congratulations on the results. the chief executive of bayer joining us for an exclusive interview this morning. the stock trading higher as well on the back of those numbers. up next, more drugs. the world's largest maker of insulin sees profits rise. we'll speak with the c.e.o. of novo nordisk.
jonathan: good morning. welcome back to bloomberg tv. here are bloomberg's top stories. federal reserve officials have hinted that december may be the time for the first interest rate increase since 2006. the federal open market committee last night dropped a reference to glome global risk and referred to its next meeting as it discussed liftoff time. china's premiere said they need growth for the next five months
o six years. shell earnings missed estimates this morning. the oil major posted a 70% decline in third quarter profit as crude price slumped. shares lower by 1.6% this morning. novo nordisk results beat estimates as insulin sales climbed. they raised their forecast for operating growth to 20% for the year. for more, i'm pleased to say the company's c.f.o. jesper brandgaard joins us from copenhagen. great to have you with us this morning. the first question i have for you, decent numbers. nothing wrong as far as i can see. the stock down 3%. what do you make of that? jesper: well, the stock market is always right. we have also been out giving some guidance for the growth in 2016 where we meet high single
digit growth and it may be those expectations that slightly are disappointing the market. it could also be that one of ur prime competitors sanofi is giving a three-year forecast for their diabetes care franchise on the negative side. jonathan: they cuts their forecast on insulin sales. are you saying that does not apply to your company at all and the visibility you have is very, very different to what's happening with sanofi? jesper: yes. when you look to their diabetes care franchise it is relying on ne compound. in other markets around the world where we have had similar reimbursement for the product like for example, japan, we have been able to capture a 30% market share over just a
two-year period. that is a competitive threat to them and they have also made a settlement eli lilly regarding the potential of a similar version of the drug. i think they are facing both i of a similar threat and that may be impacting the outlook. jonathan: let's talk about that new drug of yours. the f.d.a. recently approving its, expecting it to be another block bust. how is the pricing going with the insurance? is it going well? jesper: you should pry mirror -- primarily expect us to be in the managed care in the 2015 phase which is about 55% of the market and then later in 2017 we should try to get eck access to the medicare program for elderly.
it will be a gradual acceptance. so far it looks positive. jonathan: a lot of time we to v to talk politics and the political pressure around pricing. are you coming into that debate? do you feel that tension over pricing? jesper: clearly. we have seen quite a competitive market in the u.s. in 2015 and even into 2016. we are assuming that our prices for inlynn largely will be flat in 2015 and 2016. we have seen a slight increase in list prices which have been offset by increased rebates to anaged care. jonathan: the last few quarters you cited some difficulties are competition and pricing in china. is that situation improving for you? jesper: no. i think we will continue to see
a delicate environment. we had a particularly strong third quarter with about a 10% growth underlying but that was really an effect of an easy comparison last year. i think the growth level we will see in china this year is going to be low single digit and also because of price reforms in china, it is anticipated from our side that we will see a similar level of growth in same currencies in china next year. jonathan: this has been a growth industry for your company, particularly what's happening with insulin. do you consider the levels of growth to continue and where does it come from regionally? jesper: we believe that we will continue to see solid growth. the number of people with diabetes continues to evolve 3% to 5% and there is a clear need for better diabetes care. there is greater opportunities. we are also benefiting from having a diverse and complete
portfolio of new products in type one and type two space. early treatment and later stage treatment with insulin. this looks good for the next couple of years. jonathan: jesper brandgaard, great to have you with us this morning. i'm going to stay with pharma. the wall street journal reporting there could be a megamerger. let's bring in bloomberg's irector of research. it is more bad news. put this together for me. what's happening? >> pfizer has been on top of the list when questioned about when they are going to do a deal. they are not being shy about saying they are looking for acquisitions that would give them the opportunity to look for tax aversion but also continue to build their portfolio. they have three different
operating units. one of them called the global established products unit is one that has often binn been discussed as a possible spinoff. they are doing work to tabilize that. brought a growing miss with similar drugs that it brings and it potentially provides some stability. aybe an allergan deal. jonathan: the psychological demation this industry, tax aversion was the big reason last year. what is driving the consolidation at the moment? is it a case of just get bigger to stay competitive? is that the driving force? >> pfizer just reported two days ago. they got two drugs doing really well. the breast cancer drug. a vaccine from pneumonia going into broad adult population, elderlies, over 65 population.
they don't really have to do a deal. the point is that the company has essentially opened its hand and said they are looking for ways of bolstering the bibusiness they have allowing them to split it into several pieces. jonathan: we have seen big pharma deals get blocked before. do you see anything that could block what could be a huge deal? >> from a u.k. perspective, if they come after astrazeneca, it could be the same thing again. i would be interested twhooze a new labour leadership has to say about a possible approach. from the u.s. perspective, do you really want to go and tell politicians by the way, we're also going to take a lump of tax out of the coffers? jonathan: busy man this morning for bloomberg intelligence. next up on this program, we bring you german unemployment data as the numbers break.
>> i think they should have moved in september. i think they should have moved actually last year. but i do think it is a bit interesting to watch how in subtle ways the language does change and i think the case for you know, the international hesitancy that was given in september and how they kind of
backed off on that, i think is troubling from a communication strategy standpoint. >> i certainly don't have the insight into the fed data. but if at all being able to operate from a position of strength, we should absolutely move towards it. it is not what i would describe as a rate hike but a beginning of a renormalizeation of monetary policy. i don't think there is anything in the last month or two that pushed us in a more dovish direction. the question is how long can yellen keep her coalition together? now there is just one dissenting vote. there is a lot going on with wages and inflation and whether or not that will continue. >> i think zero fed interest rate is a crisis rate and the u.s. economy is no longer in a crisis. very gradual, very slow
increases would be proast. -- appropriate. jonathan: the fomc holds steady on rates but drops a line on concern about international risks. december is a live meeting. next week's pal payroll number, i know, everyone said this, every single month it is the biggest number ever since the last one and until the next one. speaking of the labor market, unemployment rate in germany comes in at 6.4%. in line with the survey. net change, minus 5,000. a little bit better than expected. the survey was minus 4 k. so much news out of germany. manus cranny standing by. i don't know with wr to start and then we have deutsche bank. nus: the deutsche bank news, they don't have a strategy problem. they have an impolicemenation problem. if you ever -- implementation problem.
making a less risky business. i've written down here culture and core. changing culture and how you're going to renumerate your vem bank, one of the largest generating parts of your business. we don't have a strategy problem. we have a strategy implementation problem. he is going to change the process of retune in rapet rating people. reducing the core. that is a lot of assets to get on to the market. the headline number is 26,000 jobs are to go. building capital is the ambition. cutting costs. 2018 is your decisive year. jonathan: so many headlines this morning. manus cranny thank you so much for joining us. deutsche bank trading lower this morning by 3.5%. that is its for "on the move." "surveillance" coming up after the break. if you want to talk markets, you know where i am.